FinOps & ITAM must team up to cut cloud spend
Rich Gibbons from the ITAM Review explores the relationship between FinOps and IT Asset Management when it comes to managing software costs.
Published on 9th March 2023
It’s already clear that, in 2023, corporate spending will be under the microscope more than ever. With software publisher price increases, rising energy bills and a global recession all contributing to the need for businesses to focus on cost, IT–and particularly software–is a prime place to focus. Concentrated efforts to monitor and manage software spending present a fantastic opportunity to materially improve an organization during these difficult times, enabling it to weather the storm and emerge from it lean, strong, and heading in the right direction.
Annual spending on public cloud is predicted to reach $809 billion (IDC) by 2025, so ensuring this money is spent as efficiently and effectively as possible must become a key corporate-wide priority for every business.
It’s Not All About Reduction
One important aspect to realize is that, in the modern cloud age, cost management efforts shouldn’t be all about cost reduction. Rather, it is more appropriate to focus on spend efficiency. With cloud computing as a driver of digital transformation which enables organizations to offer new services to new audiences, it’s completely understandable that your cloud bill may increase; the important thing is whether the value to your business has risen commensurately.
If your cloud bill rises by $1 million and your revenue rises by $1.5 million because you’re reaching more customers and/or have a new product line–happy days. If, however, you’re seeing your bill increase without that associated revenue increase, then that is a sign of spend inefficiency; you’re spending more for no return. This will likely be due to resources that are over-provisioned, under-used and/or incorrectly architected.
Who’s Involved?
The management of on-premises software such as Microsoft, Oracle, IBM, etc. has long been the domain of the software asset management (SAM) team or IT asset management (ITAM) team and their remit quickly grew to incorporate software-as-a-service (SaaS) products such as Adobe Creative Cloud, Microsoft 365 and Salesforce alongside SQL Server, Oracle DB and IBM Websphere.
More recently, with the massive and continued growth of infrastructure-as-a-service (IaaS)/platform-as-a-service (PaaS) cloud environments, the discipline of FinOps has experienced considerable growth and become the de facto strategy for managing public cloud spending for many enterprises.
While the two areas may seem separate, the growth of hybrid infrastructure means the two disciplines must learn from each other and work together to deliver the best overall results for a business. As John Donne said in 1624, “No man is an island,” and the same applies to teams managing corporate assets–what one team does (or doesn’t do) often impacts the other.
Let’s take a look at some of the ways this collaboration can pay off in the real world.
Azure Hybrid Benefit
This is a perfect example of how regular, clear communication between ITAM and FinOps benefits everyone. Most enterprise organizations purchase their Microsoft volume licenses via an enterprise agreement (EA) and one of the characteristics of this agreement is the mandatory inclusion of software assurance (SA). This suite of extras includes a range of benefits such as new version rights, disaster recovery rights and, most pertinent here, the Azure Hybrid Benefit.
Azure Hybrid Benefit is an SA benefit that allows you to allocate your existing on-premises licenses to cover portions of your cloud costs in Azure and on-premises hybrid infrastructure. It is currently applicable to:
- Windows Server Azure virtual machines
- SQL Server Azure: Virtual machines, managed instances, databases
- Azure stack hyperconverged infrastructure (HCI)
- Azure Kubernetes Service (AKS)
- Red Hat Enterprise Linux (RHEL)
- SUSE Linux Enterprise Server (SLES)
Each of these scenarios can help an organization reduce their cloud bill, make better use of their overall Microsoft spend, and potentially use higher-level services–all increasing their return on investment (ROI) and spend efficiency. Microsoft claims savings of 50% for Windows Server and 85% for SQL Server are possible (see here), although your mileage will, almost undoubtedly, vary.
However, while enabling the Azure Hybrid Benefit is, in many instances, as simple as ticking a box when deploying the cloud resource, that is far from the only requirement. First of all, there is a need to know how many applicable on-premises licenses you currently own and what your future plans are for renewals.
Then you must be aware of the various licensing rules that pertain to the range of Azure Hybrid Benefits and understand their implications for your specific environment. Rules and usage allowances differ between editions, such as standard/enterprise/data center, while certain benefits may not be used concurrently. Also, given Microsoft’s penchant for regularly updating and changing licensing rules, this understanding needs to be frequently reviewed and any changes highlighted.
Furthermore, given the direct link between on-premises licenses and cloud resources, changes at either side may have a knock-on effect. To keep hybrid spending as efficient as possible requires strong processes, capable discovery/monitoring tools and clean lines of communication between the ITAM and FinOps teams to keep things running smoothly:
Example One:
During the Microsoft Enterprise Agreement renewal process, a decision is made to reduce the number of SQL Server Enterprise licenses on which Software Assurance is renewed. This will require the Azure Hybrid Benefit to be removed from certain cloud workloads, resulting in increased cloud costs that need to be mitigated in other ways.
Example Two:
There is a blanket policy to activate Azure Hybrid Benefit for all applicable workloads in Azure. A new project is spun up consisting of dozens of Windows Server VMs and SQL Server instances which surpasses the number of on-premises licenses available; ITAM needs to be notified so they can purchase new licenses to ensure continued license compliance and, in most cases, keep spending at a minimum.
Two Sides of the Same Coin
In a hybrid environment, spend management and license compliance are often interlinked. So far, the software publishers have been relatively hands-off when it comes to policing and enforcement of their licensing rules in the cloud, but that could change at any point. Given that we’re already seeing the impact of the recession with layoffs across several major software vendors (Microsoft, Google) and Microsoft’s FY23 Q2 operating income dropping, traditionally on-premises software vendors such as Oracle, Microsoft, IBM, et al. may seek to realize untapped revenue in the cloud through license non-compliance audit penalties. While the examples above look at Microsoft licensing, the ability to use on-premises licenses in the public cloud exists with most software publishers and so, too, do the risks.
A close relationship between ITAM and FinOps with regular and comprehensive data sharing and a clear understanding of each other’s priorities will be integral to the growth and development of any business using software and cloud services. Ensuring the best use of existing assets, enabling the most cost-effective cloud spending and reducing the risk of unexpected budget hits are all fundamental aspects of ITAM and FinOps collaboration.
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